Insights 
VT 
GBP/USD reached its lowest level since April as fiscal policies were announced. UK Chancellor Rachel Reeves indicated upcoming tax hikes in the November 26 Autumn Budget, which could lead to more Bank of England easing.
Market expectations suggest the Bank of England may reduce rates by 25 basis points to 3.75%. However, it is anticipated that any decisions on rate cuts will occur post-budget.
UK Inflation and GDP Projections
UK inflation currently exceeds the Bank of England’s 2% target. Predictions indicate that the UK’s Q3 real GDP growth, due on November 13, might surpass the Bank of England’s forecast of 0.3% quarter-on-quarter.
The signal of tax hikes in the upcoming budget on November 26 is shifting our outlook on the pound. This fiscal tightening is expected to slow the economy, creating space for the Bank of England to pursue more aggressive rate cuts than the market currently anticipates. Consequently, we see a clear path for further GBP weakness against the dollar.
With the next Bank of England decision on Thursday, we are cautious about an immediate rate cut. UK inflation remains stubbornly high, with the latest figures from September 2025 showing it at 3.8%, well above the 2% target. We believe the central bank will likely wait for the budget’s details before acting, making this week’s meeting more about forward guidance than policy action.
Market Reactions and Trading Opportunities
For options traders, the coming weeks present a clear opportunity around event-driven volatility. Implied volatility for GBP/USD options expiring after the November 26 budget is likely to be elevated, reflecting the uncertainty. We would consider buying put options to position for a drop in sterling, or even a straddle if a significant move in either direction is expected post-budget.
We are reminded of the market’s sharp reaction to the fiscal event in the autumn of 2022, which showed how sensitive the pound is to budget announcements. While the current situation involves tax increases rather than unfunded cuts, the principle that fiscal policy can heavily influence monetary policy and the currency remains the same. This historical precedent reinforces our view that the November 26 budget is the key catalyst for the pound’s next major move.
Beyond the currency, the interest rate derivatives market offers a direct way to trade this view. Current market pricing implies around 50 basis points of cuts over the next year, which we believe is too conservative given the looming fiscal drag. We see value in positions that would profit from a faster pace of easing, such as buying SONIA futures contracts for 2026.
